Hollande Set to Shake Up Cabinet After Election Defeat

In spite of Hollande’s promises to make France more attractive to businesses by cutting payroll taxes by 30 billion euros ($41 billion) and easing regulations, companies are continuing to seek growth elsewhere. Photographer: Simon Dawson/Bloomberg

March 31 (Bloomberg) -- French President Francois Hollande
is set to reshuffle his cabinet after his Socialist Party was
trounced in local elections and his government missed its 2013
deficit target.

Hollande will make a televised address tonight at 8pm Paris
time, his office said. The president will name Interior Minister
Manuel Valls as prime minister, Le Monde reported.

Voters punished the government for France’s record
joblessness as Socialist mayors in cities such as Toulouse,
Limoges, Belfort, Reims and Albertville were ousted yesterday by
former President Nicolas Sarkozy’s UMP Party. The anti-euro
National Front of Marine Le Pen also gained ground. The
Socialists kept Paris, which accounts for about 10 percent of
the national gross domestic product, with Anne Hidalgo becoming
the capital’s first female mayor.

“Let’s not beat around the bush; last night was a night of
defeat,” Claude Bartolone, the Socialist head of the French
national assembly, wrote on his blog today.

In what was seen as a referendum on Hollande’s almost two
years in power, the vote shows growing discontent as jobless
claims climbed to a record of more than 3 million and the
economy barely grew in two years. The electoral losses were
compounded by a data release today showing that France’s public
deficit amounted to 4.3 percent of GDP last year instead of the
4.1 percent.

“A cabinet reshuffle looks increasingly inevitable,”
Antonio Barroso, an analyst at Teneo Intelligence in London,
wrote in a note.

‘Shock Treatment’

A Harris poll released last week said 78 percent of the
French want Hollande to replace Prime Minister Jean-Marc
Ayrault. Among the possible candidates, 19 percent favor Valls,
13 percent want Lille Mayor Martine Aubry, and 10 percent opt
for Foreign Minister Laurent Fabius, according to the poll.

“Jean-Marc Ayrault may not be the only one responsible but
the time has come for shock treatment,” Socialist lawmaker
Julien Dray said on Europe 1 radio. “The time has come to give
the government a new profile.”

Hollande’s government has struggled to rekindle France’s
sluggish economy. In January, he unveiled a “Responsibility
Pact,” with cuts of 30 billion euros ($40 billion) from
business charges and promised to squeeze government spending to
cap unemployment that’s at a 16-year high.

Ayrault said yesterday that the government “has not
explained well enough its actions to get the country back on its
feet.” He said he was still “convinced that these difficult
reforms will bear their fruit.”

Local Governments

Finance Minister Pierre Moscovici today failed to confirm
that France aims to reduce the deficit to 3.6 percent of GDP
this year. The government will provide fresh fiscal projections
to the European Commission by mid-April, he said.

“The 2014 budget deficit target is becoming more of a
challenge, especially given the political context,” said
Dominique Barbet, an economist at BNP Paribas in Paris. “More
measures will be required.”

Incoming mayors may be among the first to feel the pinch.
The national target was missed in large part because the
shortfall by French local governments jumped to 9.2 billion
euros from 3.7 billion euros a year earlier.

About 6,000 municipalities held run-off elections for city
councils yesterday after a first round of voting a week ago in
all of France’s 36,000 towns.

Record Abstentions

Valls said yesterday that preliminary numbers showed the
Socialists and their allies got 40.6 percent of the vote
nationwide, while the UMP and their allies got 45.9 percent and
Le Pen’s National Front got 6.8 percent. He said 10 towns with
populations of more than 100,000 swung from the left to the
right.

A record 38.5 percent of registered voters abstained,
according to estimates by TF1 television.

“The high abstention Sunday shows the failure of the left
to mobilize its supporters,” Frederic Dabi, deputy director
general of polling company Ifop, said on i-Tele television.

Local elections generally go against the party in power,
Dabi said, citing an election 10 years ago when the party of
then President Jacques Chirac lost control of 24 of France’s 26
regions.

‘Strong Disappointment’

The UMP yesterday held on to the mayor’s job in Marseille,
France’s third-largest city. The victories gave the party a
breather from months of scandals and a leadership battle that
have left it in disarray since Sarkozy lost the presidency in
May 2012.

The Socialists had some victories, holding on to Metz,
Rennes, Strasbourg, and Lille, and wresting control of Avignon.

The National Front won in Frejus and a candidate linked to
the front won in Beziers. The party failed in Perpignan and
Avignon, where it scored strongly in the first round.

The anti-immigrant party may not match its success in 1995,
when Front candidates won mayoral elections in Toulon, Orange,
and Marignane. None were re-elected.

The mayor-elect of Paris also urged Hollande to take note
of the election results.

“There should be a very deep change in the government,”
Hidalgo said. The president “must take stock of the seriousness
of the situation. There is a strong disappointment.”